Tips to avoid Foreclosure

What's bringing you to the brink?

1. What is the cause of the delinquency
2. Is it short or long-term?
3. Too much debt? Maybe refinance
4. Contact bank ASAP if problem is long term and foreclosure seems eminent

If you are beginning to struggle with payments and fear you may become late, consider the following BEFORE becoming delinquent.

Consider if a debt consolidation refi would be beneficial
1. This is good if you have multiple credit card payments that are getting out of control
2. This is good if you have an adjustable rate loan or one that is about to adjust
3. There most be enough equity in the property
4. No or few mortgage lates that have been brought current
5. Fair to good credit rating (more on that later)
6. By rolling in most/all of your debt; your new mortgage payment must be lower than your current combined payments

With a debt consolidation refinance, your mortgage balance will go up and the rolled in debt will be payable with your mortgage for 30 years. However realize this, that if you pay the minimum credit card payments only, statistics show it could take 20-30 years to payoff. If you have any lates now you are paying penalties, fees and a possible increase in interest rates. Mortgage interest rates are always much lower than credit card rates. Mortgage interest is tax deductible (speak to your tax preparer) credit card interest never is. Therefore if you are saving money each month by rolling in your debt and you don’t continue in the same patterns that got your debt into overdrive, then a debt consolidation refi may be beneficial to you.

If your debt exceeds the bank’s limits of the amount you can borrow against the value of your home, then it may already be too late to consider. If you have multiple lates on your mortgage that have not, nor will be made current, again it may be too late.

A debt consolidation refi is safe to consider when you suspect things may get out of hand, not once you are already in trouble or in need of a bail-out.

Now there are Foreclosure bail-out loans available. However they offer a short-term very high interest rates and may require you to pay-off all other delinquencies that appear on your credit. Liens on your property ALWAYS must be paid. These loans are only successful when you have sufficient equity in the property. Most will be limited to 60%-65% Loan to value of the home.

For example:
Your home appraises at $300,000. The lender approves a Foreclosure bailout loan to 60% of the value, $180,000.

That amount must include:
1. Mortgage payoff, which at this point includes all the penalties, interests and very expensive Bank’s attorney’s fees.
2. All closing costs (Due to the nature of these loans, more expensive than conventional refinances)
3. All liens on the property
4. Pay off most if not all other delinquent accounts and collections that show up on your credit.

Due to the above and other strict guidelines and high interest rates, few qualify for these loans and few successfully make it to closing.

Again it’s best to act immediately before you get into this much trouble

Steps you can take to avoid foreclosure and save your home

Loss of a job, medical expenses and other unexpected life changing occurrences can happen to anyone, causing us to fall behind on our loan and other payments. To neglect paying our credit cards hurts our credit rating, but if we stop paying our home loan, the lender can foreclose, and put the home up for auction.

Lenders don’t want to foreclose; they don’t want to own your home and will usually work with you to get you back on track. You must put your pride on hold if you’re serious about stopping the foreclosure process.

1. Contact your lender as soon as you know your payments will be late.
2. Never ignore the lender’s letters or phone calls. Ignoring the problem won’t make it go away.
3. Never assume your situation is hopeless.

Solutions for short-term problems.

Reinstatement: This might be possible when you are behind in your payments but can promise a lump sum to bring payments current by a specific date.

Forbearance: Here you are able to delay payments for a short period, with the understanding that another option will be used to bring your balance current.
Sometimes lenders will combine foreclosure with reinstatement if you know you’ll have the funds to bring your account current by a specific date.

A Repayment Plan: If your account is past due, but you can now make payments, the lender might agree to let you catch up by adding a portion of the past due amount to a certain number of monthly payments until your account is current.

Solutions for Longer-Term Problems

1. Mortgage Modification: If you can now make your regular payments but can not catch-up the past due amount, the lender might agree to modify your mortgage. One solution is to add the past due amount into your existing loan, financing it over the long term.

This might also be possible if you no longer have the ability to make payments at the former level. The lender can modify your mortgage to extend the length of your loan or take steps to reduce your payments.

2. Selling your home. If catching up and staying current is not a possibility, the lender might agree to put foreclosure on hold to give you some time to attempt to sell your home. I recommend using a reputable realtor. Many folks try to save money by selling the home themselves. You don’t have time to make mistakes or become victimized by those that may take advantage of your situation, hire a qualified Realtor!

3. Deed in Lieu of Foreclosure: When the lender allows you to give back your property and forgives the debt. It does have a negative impact on your credit, but not as much as a foreclosure. The lender might require you to attempt to sell the house for a specific time period before agreeing to this option, and it might not be possible if there are other liens against the home.

Each lender has their own guidelines and protocols as to what options they will make available to their delinquent customers. This is why it is IMPERATIVE that you communicate with them and work together to find the best solution for your particular situation.

Things to watch out for:

Beware of scams!
Solutions that sound too simple or too good to be true usually are. If you’re selling your home without professional guidance, beware of buyer who tries to rush you through the process. Unfortunately, there are people who may try to take advantage of your financial difficulty.

Equity skimming. Here a “buyer” approaches you, offering to get you out of financial trouble by promising to pay off your mortgage or give you a sum of money when the property is sold. The buyer then collects rent for a time, does not make any mortgage payments, and allows the lender to foreclose. Remember, signing over your deed to someone else does not necessarily relieve you of your obligation on your loan.

Phony counseling agencies. Some groups calling themselves “counseling agencies” may approach you and offer to perform services for a fee. These could well be services you could do for yourself for free, such as negotiating a new payment plan with your lender, or a pre-foreclosure sale. If you have any doubt about paying for such a service, call HUD-approved counseling agency at (800) 569-4287. Do this before you pay anyone or sign anything.

Here are several precautions you can take to avoid being taken in a scam.

1. Don’t sign any papers you don’t understand.
2. Beware of any contract of sale of loan assumption where you are not formally released from liability for your mortgage debt.
3. Make sure you get all promises in writing.
4. Check with a lawyer or your mortgage company before entering into any deal involving your home.
5. If you’re selling the house yourself to avoid foreclosure, check to see if there are any complaints against the prospective buyer. You can contact your state’s Attorney General, the State Real Estate Commission, or the local District Attorney’s Consumer Fraud Unit for this type of information.

If worse comes to worse and your home is lost to foreclosure all you can do now is start rebuilding your credit and do your best to avoid the pitfalls that got you into this in the first place.